South Florida M&A Advisors Podcast
We are a team of highly experienced M&A advisors who specialize in offering bulge bracket like deal advisory services to lower middle-market companies across the United States and globally. Our team of experts have a deep understanding of the M&A process and a proven track record of successfully navigating complex transactions. Our focus is on delivering personalized, tailored solutions to meet the unique needs of each of our clients. Whether you are looking to buy or sell a business, or seeking guidance on a strategic financial decision, we have the expertise to help you achieve your goals.
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contact (954) 646-7651
email: rcohen@southflorida,ma.com
South Florida M&A Advisors Podcast
EP #11: The Essential Hub for M&A Transactions: Understanding Data Rooms
Discover the essential role of data rooms in the world of mergers and acquisitions in our latest episode. As we unpack the intricacies involved in organizing, securing, and managing crucial documents, you'll learn firsthand why a well-structured data room can significantly impact the efficiency of M&A transactions.
Join us as we share vital tips and real-world examples of what a successful data room entails, how to anticipate buyer requests, and the importance of preparation for business owners considering a sale. Russell Cohen emphasizes the need for meticulous organization from the outset, suggesting that business owners should not delay in getting their documentation in order.
We delve deep into the challenges associated with document requests, discuss ways to enhance security, and even explore how the latest technology trends, including AI, may transform the data room landscape.
Whether you're a seasoned business owner or new to the M&A scenery, this episode offers invaluable insights and strategies that can pave the way for a smooth transaction process. Tune in for expert advice, engage with our community, and ready yourself for successful negotiations. Don't forget to leave a review and share your thoughts with us!
Welcome to the South Florida M&A Advisors Podcast, your trusted M&A team. Here's your host, Russell Cohen.
Speaker 2:Hello everyone and welcome back to another episode of the South Florida M&A Advisors Podcast. Russell. Always good to see you, brother. All right, good morning. Jeremy. All right, good morning and welcome. Thank you, everybody for joining us. So, russell, you're now under a signed letter of intent and it's time to start getting the data room, the deal room, going. Start there. Number one for those that don't know what is a data room, a deal room, a deal vault as they call it, why don't you explain that for our listeners?
Speaker 3:okay, no problem. So you just went through, uh, torture, getting an loi done after a few weeks of negotiation and you're already a little tired and uh, you're like what's coming next? Right, so you get the loi done and then you know this is the start of the quality of earnings, or the audit you want to call it, or the documents review portion of the M&A transaction. So, as an M&A advisor, we have to keep everything organized because you're going to be sending a tremendous amount of proprietary information, private information about your company, and we need to have it secured in a vault-like setting where the buyer and their team and their quality of earnings attorneys will be reviewing these documentation. Attorneys will be reviewing these documentation.
Speaker 3:So there are many companies that provide that service, but there are a few companies that do specialize in the M&A space. So you know we obviously have services that you know we hire, like a deal vault or a data room, deal room for our needs for the M&A transactions. So to sum it up, basically this is where all your business information about your company and we're going back many years because they do go back many years they ask for things that you probably wouldn't expect. It has to go into a secured place, secured vault.
Speaker 2:Okay, so essentially, if I understand correctly, it's basically just a hub to house all the documentation, all the information that's pertinent for the deal. Correct, yeah, now is that I'd imagine this is a standard thing in the industry. Are there business brokers out there that don't use this, or is this something that is like the gold standard in the industry? If you're putting a deal together, you are.
Speaker 3:You absolutely need one of these data rooms yeah, if you're in the world of m a transactions, you have to use a data room because the amount of information that's going to be requested, that's going to be requested, is so voluminous. It's, it's incredible. It's not just about accounting, it's about insurance, it could be about environmental, it could be about your, your lease, the benefits, legal, and you're talking like I'm in the middle of a M&A transaction and it's a $14 million enterprise value and the private equity group has over a hundred folders just from them that they want to get information from the seller Okay, and, like I said, it ranges from all different topics employees, information on employees and everything, and so seller, or their spouse or their controller or their office manager, if they're in the know, have a incredible job in front of them to dig out this information, because they will ask for information that you're not expecting. So, as the M&A advisor, we have to get it organized in a format that works for the private equity group and the accounting team.
Speaker 2:How do buyers and sellers typically interact or interface with the data room? Is it something that's kind of open source for both parties? They have the same access, as well as all the different members of the team. Does everybody have their own access? How is it typically structured and what is the access like for the parties involved?
Speaker 3:Yeah, so seller will have the ability to upload their docs and a lot of times it's just a whole data dump into a folder and then the M&A advisor will move it into the correct folder.
Speaker 3:So the private equity group will provide us a list and we have to set up the data room to match the list and when the accounting firm gets involved they're going to give us it could be. I've seen 10, 25 page lists going on. Crazy Burnout happens in these M&A transactions because there's so much information going on and and it's just constant questions and we're having discussed down the legal side. But, um, you know. So the the private equity group or the uh quality of earnings firm will provide us a list in excel and and we have to mirror it in the in the data room because so much information is coming and they they don't want to go on a wild goose chase and guess where it is. So the easier that we can mirror what they're looking for and the categories and the subcategories and ABC, you know, the better the flow of information. It just really depends how quickly the seller can get us that information.
Speaker 2:I can imagine that having a well-organized and well-structured data room would help tremendously in the efficiency and the speed of getting the deal done. Can you speak to like? I'm sure you've done a lot of these deals. I'm sure you've seen both sides of this right. You've been brought into a deal. You've probably seen a data room that wasn't well-organized or dealt with that mess, versus something that was streamlined and in the situation where it wasn't set up really well, versus the one where it was streamlined and really set up yeah, obviously, yeah, I mean listen a streamlined data room that mirrors the accounting firm's Excel spreadsheet.
Speaker 3:You know it. Just less questions are going to happen. And then, obviously, if we have a deal where it's disorganized, that's where early frustration in the deal can happen and the private equity group will get a little unhappy and the accounting firm can't, the legal firm can't do their job and a lot of times documents have to go in multiple, multiple categories, right, just because they're covering in the legal side. When we get even deeper into the deal and we're getting into the disclosure schedules towards the end of the deal, towards the contract, a lot of these documents have to flow in multiple categories in the data room. So very complicated and it's really tough on the seller or the spouse or the person doing it. It's just incredible. You can't imagine it until you actually get the list and see how daunting it is and it seems like it goes on forever.
Speaker 3:Really, it just sounds complex, yeah.
Speaker 2:So are the owners basically taking all this information and putting it in there and then you go in and structure it and organize it, or do they give it to you and you put it in there, and what do you commonly see Like? What typical types of mistakes do you see most from business owners when putting this thing together?
Speaker 3:So I have a business owner right now. As I mentioned in my current transaction, he likes to put the information in the correct category, so he's doing a great job. But, sometimes there's duplicates that he put in the wrong and I have to go in there and I'll you know I will correct it. And then some sellers just want to get the information in one folder and then I can move it. So yeah, it's really just depending on the Player, dependent Type A, you know, if someone's a type A and they have to.
Speaker 3:You know they have to do it themselves. Some people are doing it themselves and they don't want other. They want to control their situation. So it's great to have sellers like that. That's great. We just got to make sure that both parties know what is in the files and so they're not getting lost themselves Because there's so many places, so many categories. Like I said, in this current deal it's like 100 different things to fill in, and so we don't need the seller to click on 100 different categories to see what's in there. We need to let them know what they have already provided and what they're missing. What they have already provided and what they're missing. And we have to provide to the private equity group, you know where they understand what's in each category, and a good data room will probably have will highlight that you know if there's something in the data room, so they don't have to guess if one's empty or not.
Speaker 2:Basically, so, as with anything we're taking personal information and putting it online and storing it in a place, there's always security risks to consider. Is that something that you do have to take into consideration, or are these data rooms? They already have that kind of baked into the cake, right? How can firms ensure that their sensitive information is properly protected?
Speaker 3:Yeah, these data rooms are really well protected. This is what they do, and there's something called watermarking where if you have sensitive data they can watermark and there's markings on the document, watermark. You know watermark. I'm not sure if you're familiar with watermarking, but instead of having a document that just has information on it, watermarking is kind of like behind the scenes on the document and it's better for security purposes, for any proprietary information. But those are good features to have in a in a data room. But, like I said before, it is a such a daunting task that I guess you really don't realize until you're in it. On on how detailed they will go. I warn the owners that they probably would only want to do this once.
Speaker 2:Yeah right, I can imagine, with all the unbelievable advances coming up with with technology, uh, with the ai revolution coming, it's gonna gonna be a. I would imagine it's gonna be a very helpful thing to help organize and sort. I don't know how it integrate with these tools. I'm not overly familiar with data rooms per se, but I could imagine that the power of AI will ultimately help in the processing and storing and analyzing of this data. Really incredible.
Speaker 3:Yeah, I'm sure AI will come into play in all industries. I think one of the biggest challenges when we keep getting these we get these very large lists from the legal team, from the accounting team, from the private equity group, and they're giving it us to an Excel. So how do we put this large list into the data room? And if you don't have the right data room, you're manually copying and pasting each one at this point. But there are a few data rooms that will you can actually copy and paste and your, your, your list will show up in the data room.
Speaker 3:Um, so that's kind of important because you can spend quite a bit of time, uh, if you have the wrong data room, manually entering each you know one through all 105, let's say, to 100, let's say and and you're just copying and pasting and creating the categories and subcategories. So important to find a data room that will have the ability where you can copy and paste off an Excel spreadsheet all the categories and it will actually appear in the data room. All done within a few minutes. That saves you a lot of time. So that's probably the biggest quagmire for a data room and for M&A advisor is to manually enter it in which is I know some very large firms that are still doing it that way.
Speaker 2:They got to get up with the times. My man, yeah, you got to find the right firm to do it. Yeah, I've said this before many times this transaction is so complex. It's so imperative to have the right team behind you. I mean, with anything in life, it's important to have people that specialize in the thing that you're trying to get done, but even more so with what you do, especially for somebody that's spent the last three or four decades building their business from scratch and they're in a place where they're going to sell now. So important to have a knowledgeable team behind them.
Speaker 3:It's so important Every angle of this experience.
Speaker 3:You got to have your team of advisors because once again, you're dealing with professional buyers that do this for a living.
Speaker 3:This is your first turn into M&A transaction and and if you have the right advisor, the right attorney and the right um, you gotta have the right CFO or fractional CFO in the transaction.
Speaker 3:It will. It will still be daunting and be tough, but you'll have. You'll feel very good about it at the end because you know you've been advised properly and you know the data room, deal room is is the lifeline of the deal, because you know you're already, you know you now you're excited, you got the deal and now you're going through the, the, the most tenuous part of the of the process, through the most tenuous part of the process. So the question is you got to just be mentally ready. If you're not mentally ready for and the deal goes slow, it's not a fast moving transaction, it moves really slow. So the good thing is, every decision you make along the way will be calculated, will be confirmed with your advisors and you know it's all leading to the, to the end game, where you see the light at the end of the tunnel and and you you know you make life-changing generational money any closing thoughts?
Speaker 2:maybe a piece of advice for a business owner out there that is getting ready to potentially sell. What would you like to leave them with?
Speaker 3:If you feel you don't have a good handle on the I guess the information that's going to be necessary to provide to a private equity group, then it's probably not the right time to sell. You got to get organized and it's all great to have great numbers, but you got to be able to support it and it's not just supporting the numbers. You're going to get audited in every angle of the business, from the legal, from the lease, from the real estate to the benefits, to insurance. You can name another five more topics. Every stone will be unturned. You got to have your documentation.
Speaker 3:If you're dealing with OSHA, they'll ask you for OSHA stuff. They'll ask you when documents that when you incorporated 30 years ago, very tough, very tough stuff. I mean I had sellers going to storage storage of their old storage facility to gather docs from 20, 30 years ago. So yeah, it is. It is a tough, tough process but it's the most rewarding at the end because the legacy of your business will move on. You'll get generational wealth and, more than likely, if you stay in the deal with the private equity group, there's an opportunity for rollover equity and get more money down the road.
Speaker 2:Yep, I would say this to business owners out there just don't wait until you're ready to sell to get organized. Keep that in mind as you run your business and keep everything organized along the way. So when you get to the point when you're ready to sell, everything will go a lot smoother.
Speaker 3:A couple of years in advance is definitely a good time to prepare for a sale.
Speaker 2:All right, very, very good, russell. Always a pleasure. You are truly a wealth of knowledge, my friend. Thank you, appreciate it. All right, guys. Thanks everyone for tuning in. If you're out there and you've been through this process before, if you've had anything that's worked for you, maybe anything that hasn't worked for you pertaining to this subject, leave it in the comments below and we'll have Russell chime in and answer your questions. Thanks everyone for tuning in and we will catch you all next time on the next episode of the South Florida M&A Advisors Podcast. If you want to take care, have a great day.
Speaker 1:Thanks for listening to the South Florida M&A Advisors podcast. I want to take care. Have a great day. Thanks for listening to the South Florida M&A Advisors podcast. For more information, visit SouthFloridaMAcom or contact 954-646-7651.